I rip the disks (both DVD and Bluray) with AnyDVD HD, it keeps original file structure and AFAIK removes copy protection in the process. Yeah it is kind of a waste of space but I really like the fact that when it plays it acts as if the original disk is in the drive, all menuing, extras, and other crap is all functional. When I started doing this I did the the decoding/encoding stuff to shed all the extra junk but I quickly realized I'd rather buy the extra drive space it requires rather than spend all that time doing the work myself especially now that 2TB are ~$75. And TBH I kind like how it plays as the original disc would... even if I almost never use it.

I'm pretty sure I never told MP what file type it should be using. I just know it was accessing the .ifo file from looking at a log. I'll try some stuff tonight. BTW I attached the log file that MP spits out from debugging mode if it means anything to you.